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Risk Assessment and Return Analysis - Essay Example

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Risk Assessment and Return Analysis

This paper will provide a comprehensive risk assessment and return analysis of the investment portfolio encompassing investments in Dell, Home Depot, Procter & Gamble, General Electric, IBM bond and Disney. Dell Although the company continues to perform relatively well, Dell is currently competing in a different market in which the company does not have a substantial advantage. Dell thrived in the past because of its product offering as the company concentrated on the sale of desktops that were built on order. Dell sustained low parts inventories to reduce overhead. Furthermore, Dell’s direct sales program gives the company a low cost edge. While this ensures that the company’s profitability remains high, the company does not have cost efficiency. The company will, however, continue to operate profitably thereby deterring risks such as liquidity risks. This means that the return on investments will remain relatively high as long as the desktop sector does not suffer economically. Disney Investing in blue chip companies such as Disney is always advantageous. However, investing in Disney offers relatively low yields on investment but low risks. This is because investing in defensive stocks, in Disney, ensures the investor low volatility with regard to the industry and low prices thereby providing easy buy-out options. In addition, Disney continually increases the dividend offerings on its shares hence providing low investment risks in which an investor does not receive any dividends or return

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on investments. Disney shareholders also enjoy the opportunity to convert their dividends into common shares reinvested in Disney’s common shares (Bodie, Kane & Marcus, 2006). Moreover, Disney has long been the market leader in its industry, which exemplifies the company’s formidable decision making strategies that continue to yield high returns and ensure returns for their investors. General Electric General Electric, which is the second largest company within the US, has a market capitalization of approximately 320 billion. Despite this high rank, the company’s shareholders do not enjoy the benefits of being affiliated with the large multinational. This is because the company’s long-term price performance is quite dismal. In 2000, General Electric’s stock sold for $48 per stock by 2002 they sold for $17 per share. By 2007, the shares had recovered to sell for $37 but have since plummeted to just under $16 per share. Fundamental evaluations of return yield i.e. analysis of cash flow and earnings foretold this meager performance of GE’s stocks. They also continue to indicate the low return rates on GE’s stocks. Home Depot Investing in home depot is beneficial since investors enjoy low financial risks, particularly because of the company’s massive market capitalization, exemplary credit rating and large cash balance proportions (Costantini, 2006). Home Depot continues to offer high returns on investment or capital while the company’s consistent cash flow enables it to return high value to shareholders. This is through strategies such as share buybacks and dividends. Home Depot’s international expansion offers the possibility for long-term growth. Although the industry tumbled in the past, Home Depot’s management initiatives helped to improve store experience thereby driving results such as market recovery. Procter & Gamble Like most companies,

Summary

Risk Assessment and Return Analysis Name: Institution: Risk Assessment and Return Analysis In investment, risk assessment and return analysis are vital elements are central to the payout structures of investment vehicles. The general utility theory asserts that the average investor dislikes risks and prefers investment vehicles with the least possible risk…
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Risk Assessment and Return Analysis essay example
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